India is facing a severe power crisis as the demand for electricity has soared to record levels in September. The main reason for this is the dry weather caused by the rain deficit, which has increased the use of irrigation pumps by farmers and cooling appliances by households. To avoid blackouts and ensure adequate power supply, the central government has extended an emergency law that requires all coal-based power plants to import 4% of their coal needs until March 2024.
Why Coal Import Mandate is Necessary
Coal is the main fuel for power generation in India, accounting for about 70% of the electricity produced. However, the domestic coal supply has not been able to keep up with the rising demand, resulting in a shortage of coal at power plants. According to the power ministry, the gap between coal consumption and receipt of domestic coal was about 2 lakh tonnes per day in August. This gap was partly filled by importing coal from abroad.
The power ministry said that it extended the emergency law, which was invoked earlier this year under Section 11 of the Electricity Act, because of the logistical constraints associated with the railway network. The railways are unable to transport enough domestic coal to power plants, which are running at full capacity to meet the demand. The ministry said that the Central Electricity Authority has estimated a domestic coal requirement of about 404 million tonnes (mt) between October 2023 and March 2024, but the availability of rakes will be sufficient for loading and dispatching only 397 mt of domestic coal.
The emergency law applies to all coal-based power plants, whether they are owned by the central government, state governments, or independent power producers. The power ministry said that thermal power plants can import 4% of their coal requirements, which is lower than the previous limit of 6%. The imported coal can be sourced from any country or agency, as long as it meets the quality standards and specifications.
How Coal Import Mandate Affects Power Sector and Consumers
The coal import mandate has implications for the power sector and consumers in terms of cost, reliability, and environmental impact. The power sector will have to bear the additional burden of importing coal, which is more expensive than domestic coal. The price of imported coal will depend on various factors such as global market conditions, exchange rate fluctuations, transportation charges, and taxes. The power ministry said that the cost of imported coal will be passed on to the distribution companies (discoms), which will in turn recover it from the consumers through tariffs.
The All India Power Engineers’ Federation (AIPEF) has opposed the coal import mandate, calling it “unfair” and “illogical”. The AIPEF said that if the railways are unable to deliver domestic coal to power plants, then how will they deliver imported coal from ports? The AIPEF also said that the price of imported coal should be borne by the central government, not by the consumers. The AIPEF argued that importing coal will increase India’s dependence on foreign sources and compromise its energy security.
The environmental impact of importing coal is also a matter of concern. Coal is a fossil fuel that emits greenhouse gases and pollutants when burned, contributing to global warming and air pollution. Importing coal will increase India’s carbon footprint and undermine its commitments under the Paris Agreement on climate change. Moreover, importing coal will reduce the incentive for developing renewable energy sources such as solar and wind, which are cleaner and cheaper in the long run.
How did Coal Import Mandate Boosts Coal India Share Price
One of the beneficiaries of the coal import mandate is Coal India Ltd., the state-owned company that produces and supplies most of the domestic coal in India. Coal India shares have risen by more than 15% since start of September, as investors expect higher revenues and profits from increased sales and prices. Coal India has also ramped up its production and dispatches to meet the demand from power plants.